Taking the temperature of investment climate€¦ · Russia attractiveness survey 2013. Ernst & Young's 2013 attractiveness survey Russia Shaping Russia’s future. Page 5 Methodology

Taking the temperature of investment climate

SILVER SPONSOR

September 12th, 2013


Ruslan Kokarev,

COO, AEB

Welcome speech



Stuart Lawson Chairman of AEB Finance & Investments

Committee; Executive Director / Head of

UK Business Center, EY

Introduction. Russia attractiveness survey 2013

Ernst & Young's 2013 attractiveness survey Russia

Shaping Russia’s future

Page 5

Methodology Ernst & Young’s 2013 Russia attractiveness survey is based on ...


1. The real attractiveness of Russia to foreign investors based on FDI

data, excluding Mergers and Acquisitions (M&A) and other portfolio

investments.

2 The perceived attractiveness of Russia and its competitors by

foreign investors based on telephone interviews conducted with a

panel of 206 international business leaders in 24 countries.

Page 6

Uncertainty hampers FDI in 2012 The global view


FDI inflows by region

(2012 vs. 2011)

► US$1.3t global FDI inflows in 2012 exceeded pre-crisis average

► 18% decline due to economic recuperation impediments

Latin America and the Caribbean 7.2%

Africa 5.5%

-9.5% Asia

-34.8% European Union

-35.3% United States

-36.1% Europe

Source: Global Investment Trends Monitor, United Nations Conference on Trade and Development (UNCTAD), January 2013.

Building for growth FDI in Russia today

Page 8

Number of FDI projects and jobs in Russia (2007-12)

Stable projects, more jobs FDI in Russia


+59.7%

139 143 170 201 128 128

Projects

2007 2008 2009 2010 2011 2012

14,934 12,900 11,834 8,058 8,362

13,356

2007 2008 2009 2010 2011 2012

Jobs

13,356 jobs 60% increase on 2011 2nd in Europe in FDI-generated employment

FDI activities by number of projects (%share) FDI activities by job creation (%share)

5.4%

46.9%

47.7%

Projects

Strategic functions

Manufacturing

Others

0.9%

98.2%

0.9%

Jobs

Strategic functions

Manufacturing

Others

Source: Ernst & Young’s European Investment Monitor, 2013.

Stable FDI projects

in a year when FDI

activity has declined

globally, economic

growth has been limited

and unemployment

figures have risen

Page 9

Automotive prevails — business services catching up FDI by sector


Energy

► Oil and natural gas account

for almost 70% of exports

and about 50% of the

budget revenue

► Global oil majors called to

tender for Arctic oil

contracts

► Liberalization of investment

regulations for the oil and

gas sector:

► Tax incentives on offshore

production

► Cancelation of export duties

► Introduction of a reduced

mineral extraction tax

Business services

Snapshot

► Shift of focus from

resources to services

► Moscow is preferred

► Multiple investment

enablers

Chemicals

► 19% of FDI jobs

created

► Expected to prosper

from WTO accession

due to export-tariff

reduction

► German companies

lead in investment

21% 13% 11%

► 50% rise in

investment

► 22% increase in value

of Russia’s car market

to RUB2.3t (US$77b)

► Spike in projects from

Germany and Japan

► St. Petersburg and

Kaluga most attractive

Automotive Percentage

of total projects

in 2012


Page 10

The West continues to lead Sources of FDI

FDI by source region (2012)

► The US continues to be the leading investor

► Funded 22.7% of total FDI projects in 2012

► Investment activity was concentrated in the business services, software, computers and financial

intermediation sectors

► Germany took the lead in job creation with 33.4% of all jobs created while automotive and chemicals

sectors together accounted for 67.9% of the projects

► France, Russia’s third largest investor in 2012, entered a cooperation pact with the country to solidify

their relationship and deepen investment and trade ties

68.3%

64.1%

24.2%

12.4% 7.0%

12.0%

4.7%

7.3%

Projects Jobs To encourage investment

from emerging markets,

Russia is trying to create a

mutually beneficial climate

by pursuing joint initiatives


Europe North America Japan Others


Page 11

Investment appeal FDI hot spots


FDI by region

Rank Region Projects Jobs

2011 2012 Change Share 2012 Share

1 Moscow 40 40 0.0% 31.3% 63 0.5%

2 St. Petersburg 16 11 -31.3% 8.6% 606 4.5%

3 Nizhny Novgorod 2 9 350.0% 7.0% 1.780 13.3%

4 Kaluga 11 7 -36.4% 5.5% 2.160 16.2%

Inves

tmen

t en

ab

lers

► Healthy business

environment

► Qualified workforce

► Higher salaries

► Developed infrastructure

► Over 10 million

population

► More billionaires than

any other city in the

world

► FIFA World Cup in 2018

Moscow

► Proximity to European and Asian

markets

► Investment policy to encourage FDI

in automotive, transport & logistics,

and pharmaceuticals sectors

► Main port city in Russia, with a 65%

share of exports

► Large local projects, such as

Pulkovo Airport and the Western

High-Speed Diameter toll road

► Predictive science center

St. Petersburg

► Abundance of

natural resources

► Strategic location

► Regional

government offers

tax and other

incentives

Nizhny Novgorod

► Location, in the

heart of Russia

► Proximity and good

transportation links

to Moscow

► Industrial and

technological parks

Kaluga


Page 12

Existing investors remain confident Investor plans


Is your company considering entering/increasing existing operations in

Russia over the next year?

15%

41%

44% 68%

20%

12% 6%

20%

74%

Yes No Can’t say

Source: Ernst & Young’s 2013 Russia attractiveness survey (total respondents: 206).

Total Investors established Investors not established

Avenues for growth How Russia is viewed by foreign investors

Page 14

► In this year’s European attractiveness survey, Russia’s attractiveness

score is …

► the highest since 2009

► four times the 2006 level

► … and it overtook India as the sixth most attractive destination in the world

Which is the world’s most attractive region to establish operations?

Change

from 2012 (points)

The world’s sixth most attractive destination Increasing appeal


China 43%

Western Europe 37%

North America 29%

CEE 28%

Brazil 26%

Russia 20%

India 19%

-1

+4

+8

+7

+8

+1

-2 Source: Ernst & Young’s 2013 European attractiveness survey (total respondents: 808)

Page 15

Russia’s attractiveness profile Strengths and challenges


How attractive is Russia for establishing activities based on the following criteria …

Domestic

market

Natural

resources

Telecommunications

infrastructure

70%

Very or fairly

attractive

64%

61%

► US$14,105 GDP per capita – highest in BRICs

► 4th largest consumer market in the world by 2020

► US$3t consumer spending by 2025

► 73.8 million users population – largest in Europe

► World’s largest natural gas and freshwater reserves

► 2nd largest coal reserves

► 9th largest crude oil reserves

Little or not at all

attractive

55%

45%

43%

► Political, legislative and administrative environment

► Sustainable development

► Quality of life, culture, social environment, language


A sustainable future How Russia can move forward

Page 17

Investors are realistically optimistic The outlook


Russia has surpassed Europe as a whole in investor confidence

39%

37%

23%

1%

5%

10%

26%

59%

Over the next three years,

do you think the

attractiveness of Russia

as a place for a company

to establish or develop

activities will ... ?

How do you anticipate

the evolution of

Europe’s attractiveness

over the next three

years?

Sources: Ernst & Young’s 2012 European attractiveness survey (total respondents: 840);

Ernst & Young’s 2013 Russia attractiveness survey (total respondents: 206).

Improve Neither improve, nor deteriorate

Deteriorate Can’t say

Page 18

Services driving growth The focus of the future


Sectors driving growth in the next two years …

… in Europe

Sources: Ernst & Young’s 2012 European attractiveness survey (total respondents: 840);

Ernst & Young’s 2013 Russia attractiveness survey (total respondents: 206).

Call to action!

Advancement in Russia’s technology and services sectors is crucial if the

country is to foster sustainable growth and development.

… in Russia

Information and communication technologies 31%

Energy and utilities 28%

Pharmaceutical and biotechnologies industries 23%

Cleantech 20%

Business to business services, excluding finance 19%

Energy and environment 32%

Heavy industry 23%

Automotive 13%

Consumer goods 12%

High-technology equipment 12%

Page 19

Energy



and about 50% of the

budget revenue


tender for Arctic oil

contracts


regulations for the oil and

gas sector:


production




Heavy industry

Enablers

► Growth of the industrial

sector and modernization

of infrastructure spurring

demand for machinery and

equipment

► Incentives for participation in

various heavy industry

sectors

► Investment in modernizing

and expanding medical

equipment industry

► Benefits of Russia’s WTO

entry

Automotive

► Waiver of import tariffs for

car manufacturers and

suppliers

► Fast-growing middle class

► Expected to become

Europe’s largest automotive

market by 2014

► Unsaturated market:

► Approximately 33% of the

cars on Russian roads are

more than 15 years old

► Car ownership stands at 200

per 1,000 people

32% 23% 13%



and about 50% of the budget

revenue


tender for Arctic oil contracts


regulations for the oil and gas

sector:


production




Energy

Energy and manufacturing to spearhead growth Sector opportunities



Call to

action!

Enhance

sectors

beyond

energy

that add

high value

Respondents

expecting sector

to drive growth (%)

Page 20

Russia’s path to sustainable growth Proposed actions moving forward


Improve Russia’s image

1. Reduce operational barriers

2. Collaborate to innovate

3. Enhance regional attractiveness

4. Improve business education


Page 21

Potential investment enablers Development and initiatives



► Image lift

► FDI increase

► Trade facilitation

► Acceleration of

diversification

► Infrastructure access

► R&D and innovation

cooperation

► Market of 170 million

people

What it means for Russia

► Increased

competition

► Higher productivity

► Acceleration of

modernization

► Enabler for future

growth

► In line with demand

of country’s labor

market

WTO accession Privatization plans Improvement in

demographic trends

Common Economic

Space and possible

Eurasian Economic

Union by 2015

17%

33%

High impact Medium impact

High or medium impact: 50%

Significantly

improve

Slightly improve

15%

35%

17%

37%

20%

44%

Significantly

improve

Slightly improve Yes, definitely Yes, probably

Yes: 64% Improve: 54% Improve: 50%

Thank you



Roland Nash, Chief Investment Strategist, Verno

Investment Research Limited

Clemens Grafe, Chief Russian Economist/Co-head of New

Markets Economic Research, Global Investment Research,

Goldman Sachs in Moscow

Ben Aris, Editor-in-chief, business new Europe (bne)

Panel discussion: Post summer update, current trends and the

status of the investment climate

April 5th, 2011

Event Name

Documents

Taking the temperature of investment climate€¦ · Russia attractiveness survey 2013. Ernst & Young's 2013 attractiveness survey Russia Shaping Russia’s future. Page 5 Methodology